How Real Is Greece's Oil And Gas Future?

Forbes

If you’ve been watching Greece’s recent energy push lately, it’s been difficult not to get too excited about the country’s potential. From political commentators to Prime Minister Antonis Samaras himself, the message has been enthusiastic and clear – Greece is home to billions of barrels of oil, trillions of cubic meters of gas and most importantly for a country saddled with the longest recession in modern history, billions in potential revenue.

Over a dinner organized by the American-Hellenic Chamber of Commerce in Athens last week, Samaras told a gathering of political and business leaders that Greece could be home to 4.7 trillion cubic meters of gas could one day provide up to 25 percent of European demand. If they could manage to combine this with already active efforts by Cyprus and Israel, this amount could climb to 50 percent and not just for the short term, but for the next 30 years.

The speech came almost a month after Samaras had presented new findings to a collection of international energy firms, including Chevron CVX -0.91%, Eni, ExxonMobil and OMV, that “revealed geological analogies between the underwater area of the North Ionian and Italian and Albanian regions of the sea where oil and natural gas have already been found”. It also reflected earlier comments Samaras had made to President Barack Obama during a visit in October. Speaking for the national government, the prime minister’s message was undeniable – Greece has real potential to be an energy force in the region.

However, as Athens current leadership presents a lucrative path towards energy independence and export options, some of the country’s energy sector leaders are rolling their eyes at the rhetoric, while taking a more cautious approach to what Greece is actually capable of doing. There is potential for domestic potential is there, they say, but even meeting domestic demand is a dream that is incredibly far away.

In addition to the government’s overall approach, energy leaders have taken issue with the evidence most commonly cited as proof of Greek potential. Hellenic Petroleum ’s John Costopoulos suggested that the country’s overly enthusiastic estimates of oil and gas potential came less from well founded research and more from “ex-professors or frustrated scientists who are looking for a job for themselves”, who will “bring out these amazing stories that Crete sits on a planet-wide reservoir of hydrocarbons”. Even still, many government officials have continued to embrace and promote the information.

In Search Of Good News

Samaras’s comments in Athens last week are certainly understandable. After all, he was addressing business leaders and potential investors in dire need of some good news about an economy in its sixth consecutive year of recession. The promise of not just meeting domestic demand, but moving towards a thriving export market is the kind of thing that makes it easier to cope with a recent OECD report released promising another year of economic contraction.

Still, energy sector leaders have grown frustrated with the government’s enthusiasm, suggesting that it not only does not help attract needed investment, but may actually make it harder.

“They should stop misguiding the public with announcements and promises that they cannot deliver,” said Mathios Rigas, Chairman and CEO Energean Oil and Gas earlier that day. “The previous prime minister said that by December 2012, we would see first oil. Another minister said we would have drilling by 2012, but we haven’t even finished the licensing process. Then there are others that say that there will be billions of oil found in Greece – billions in value. It creates a public expectation about the huge impact oil and gas will have on Greece. They even created a fund that manage the income that will come from oil and gas revenue”.

Rigas went on to say that the focus should be on creating a long term energy plan for the country and focusing on the three licenses the country offered in early 2012, which have remained incomplete due to delays related to environmental approval and contract details.

“We should congratulate the government and the minister for starting the process, but we have to be realistic about the expectation and the timing,” Rigas said. We need a long term plan, a national strategy, not just a political party strategy – a national strategy that everyone can agree on.”

In the short term, Rigas and others said the government should focus on simplifying the approval process and in the case of new exploration and production efforts, address appeals to include a clause in new contracts that would ensure that “tax and fiscal regimes” stay in place, no matter what happens in the coming years. While an extra clause pledging that a contract remain intact and honored may seem redundant, the appeal is understandable considering recent events in Euro-crisis economies. In an attempt to chip away at a sizable energy sector deficit, Spain moved to reduce support schemes for solar energy, including retroactive cuts, earning the government legal challenges from a number of investment firms. Similar government moves in Italy and Greece has led to a reasonable suspicion of any new government contract.

“Greece has a habit of changing policies – changing tax rates – not just with oil and gas – everywhere,” Rigas said. “There is no way any company is going to sign contracts without knowing what the tax regime is going to be. These are investments that can last for 25 years – they won’t take the risk if next year they say, No more 25 percent tax – now it’s a 40 percent tax.”

Concerns over the clause also stem from the fact that Greece has had three governments in the last four years and with it, three different policies on oil and gas exploration. While the country’s current Minister of Environment, Energy and Climate Change Yannis Maniatis endorsed the country’s hydrocarbon potential on a panel earlier that day, there is no certainty that he or Samaras will be around next year.

The country’s current opposition leader Alexis Tsipras’s Syriza party has gained ground on Samaras’s center-right New Democracy in recent months, twice falling just shy of becoming the largest presence in the Greek parliament, according to a Financial Times report. In addition to promising to cancel the country’s current bailout agreement with international lenders, Tsipras’s Syriza has included the drawing back on memorandum of understanding reforms that relate to natural resource concessions. Representatives from Syriza did not respond to inquires about whether they would include the nationalization of oil and gas reserves in their plans, but have publicly said they would use energy revenues to “create a fund that would guarantee the viability of Greece’s social security system.”